Norse Energy puts N.Y. land rights for sale

Gas company hurt by moratorium on drilling

Oct. 21, 2011

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NORWICH -- Norse Energy, once the most active drilling firm in central and southern New York, is putting its land rights up for sale.

The Norway-based company began an effort this week to advertise the availability of its 130,000-acre leasehold in Broome, Chenango and Monroe counties, an area expected with a strong potential for natural gas production in the Marcellus and Utica shale formations.

Norse has fallen approximately $90 million in debt while waiting for regulatory changes in the state that would allow it to begin tapping shale formations for natural gas, according to Dennis Holbrook, the company's executive vice president.

"We've paid a tremendous price for that decision to rely on the process moving forward in New York more timely than it has," he said.

Permits for hydraulic fracturing -- the technique used to unleash natural gas from tightly-packed shale deposits -- has been on hold in New York since 2008 pending an environmental review.

The state Department of Environmental Conservation isn't expected to start issuing permits for hydrofracking until some time next year.

"I'd love to be in a situation where I could simply sit and wait until everything firms up later next year," Holbrook said. "But given our current financial situation, we need see if there's an opportunity to go out there and get at a fair value -- even if it's not as high as we hope."

Despite its dire financial picture, the company has been among the few drilling companies who have continued to drill during the state's hold on hydrofracking.

Norse focused its resources from western New York to central New York -- primarily the Chenango County area -- after drilling in Pennsylvania helped realize the potential of the Marcellus.

"We sold our production units, we shifted to central New York to focus on, among other things, the shale potential there," Holbrook said. "We sold off a lot of our existing production to be able to do that and started basically from scratch to build up again."

But when the state's de facto moratorium on hydrofracking began in 2008, Talisman Energy and other large firms began to leave their interests in New York behind to focus on Pennsylvania's swath of the Marcellus.

With all its leases concentrated in New York, Norse didn't have that option.

Instead, the company tapped less productive sandstone and limestone formations for natural gas with conventional vertical wells.

"We're one of the few companies that did try and drill in other (formations)," Holbrook said. "But there's a reason that the big guys just picked up and went to Pennsylvania when all this occurred."

Holbrook said the productivity of shale drilling in other states pushed the price of natural gas so low that it stopped making economic sense for the company to drill new wells.

In August, Norse announced it would stop drilling in the Herkimer sandstone formation, which it has exploited with wells in northern Chenango and southern Madison counties.

Holbrook said the company continues to operate about 100 wells that have been drilled in the past five years, feeding them into pipelines owned by Dominion and NYSEG.

But by all measures, the company is slowing down.

"Not that we're doing nothing, but it's tough," he said. "You really can't justify the work force that we had in place when we thought we were going to be able to drill in the shale."

The company employed 70 people at the beginning of 2011 with offices in Norwich and Erie County, and has since cut its work force in half.

Holbrook said that doesn't include the road construction crews, hydrologists and other tangential jobs that were created at outside firms by Norse's the drilling operations.

He said the company would rather not sell all of the assets in the Marcellus area, even though just about everything is advertised for divestment.

"Our preference would be to sell a portion of our assets at a fair value, meet our debt obligations and move forward as a company and continue to operate," he said. "But ... we basically have an obligation to do the best we can for the people we represent, and that means we have to look at all options."

Dan Fitzsimmons, president of the Joint Landowners Coalition of New York, said Norse's troubles point to the larger toll taken by the state's delays in issuing permits for hydrofracking.

"It's a shame to see a company like this have to go that way, but this is an example of the cost of working and doing business in New York state," Fitzsimmons said. "It's unfortunate."